To please IMF, Islamabad plans to rip off Sindh

February 9, 2019

Yes, it is here. It is happening. The Centre is planning to rip off Sindh. It wants to slash Sindh’s spending on the welfare of its people (schools, hospitals, parks, roads, power projects) because it has to please the International Monetary Fund to secure a fresh loan program. 

You may be wondering what an IMF program has got to do with Sindh’s finances.

Pakistan is in talks with the IMF for a loan package to shore up its dollar reserves so it can repay foreign debt and continue paying for essential imports such as oil, machinery and raw material that keep the economy going.

However, the IMF demands, among other things, that the federal government cut its budget deficit (loss). The Washington-based lender suggests one way to do this is to cut the money Islamabad gives Sindh.

Yes, Islamabad can do this because Sindh gets more than 70% of its revenue from the Centre.

Here is how it works. The government’s main source of revenue is tax, which is collected by all provinces and the center from across Pakistan. This money, called the “divisible pool”, rests with Islamabad. The Centre keeps 42.5% of this money and divides the rest (57.5%) among the provinces according to a formula agreed upon in the 7th National Finance Commission (NFC) Award.

However, the PTI government wants to reduce the share of the provinces in the divisible pool in the next NFC Award. They have already started the process by holding a first meeting in the federal capital earlier this week. The government has not yet decided how big the cut will be but previous finance ministers have proposed to cut provincial shares by 6% to 7% to less than half of the divisible pool. If they reduce provincial shares, they will be able to increase their revenue but deprive Sindh of the provincial autonomy it won under the 18th Constitutional Amendment.

Related: IMF has softened its stance in talks with Pakistan: Minister of State for Revenue

Simply put, Sindh will have less money to spend on schools, hospitals, roads, and other development projects and a host of other direct services to its citizens that come under its jurisdiction because of the 18th Amendment. This should also explain why Chief Minister Syed Murad Ali Shah was in the news recently for making fiery speeches accusing the federal government of choking Sindh’s finances.

In fact, Sindh is already facing revenue cuts from the center. It was Rs104 billion short in transfers from Islamabad this year, Shah said earlier this week, adding he had to stop development projects because of this. This follows a development cut Shah had announced last year while presenting the Sindh budget.

“I want to mention that our provincial development portfolio now faces an allocation cut of Rs24 billion,” Shah had said in his budget speech last September, calling it an unpleasant decision.

Sindh contributes 60% to the federal government’s divisible income pool—courtesy a large amount of tax collection from Karachi—but it gets nearly a quarter of the amount given to provinces. This should also explain Sindh’s fears for the proposed reduction in what it gets. Given that the PTI has its own government in Punjab and KP and is a coalition partner in Balochistan, it is less likely to face any opposition from the other three provinces.

Related: Of the $2.3b borrowed by Pakistan in the second half of 2018, 36% came from China

One may ask why the PTI is doing this in the first place. The simple answer is the federal government is also choked for financing. The center’s deficit is more than Rs2 trillion because it spends more than it earns. Among its biggest expenditures are loan repayments and security costs. About 60% of the federal government’s budget goes to defense and repayment of previous loans.

The federal government can’t do much about debt servicing and defense, so it is trying to increase revenue to reduce its losses (deficit).

Sindh’s CM says the federal government has badly failed to achieve its revenue collection targets and now it is planning to take money away from the provinces—he is not the only one who thinks so.

“Why should I go without dinner if you can’t make your ends meet? If it’s your deficit, you bridge it,” renowned economist Kaiser Bengali told me in a past interview. Bengali, who represented Balochistan in the last NFC, said the federal government has made no attempt to reduce its expenditure in any way, yet it is eyeing to cut the shares to the provinces.

The economist said the IMF team had asked in 2008 for provincial budgets to be in surplus so that federal deficit and provincial surplus, when put together, could reduce the overall deficit. “This doesn’t make sense. If it’s your deficit, you bridge it. Why are you asking me to generate a surplus for you?” he argued.

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20 Comments

  1. Gulzar   February 9, 2019 2:41 pm/ Reply

    PTI would always criticise and severely condemned sitting govt for foreign loans.Now they are begging left and right for foreign loans,the hypocrites of highest order.all the measure declared wrong for predecessors,are not recognisable even, in case of PTI govt??????????

  2. ASIF ALI KHAN   February 9, 2019 2:51 pm/ Reply

    its a divisive article and if ppp would have spent even half of its buget on welfare rather than corruption.Sindh would be a better place.BTW THEY DIDNT DO SHIT FOR THE PAST 10 YEARS SO THIS WONT MAKE AN IMPACT ON THEIR PROGRESS.BUT THEIR AMOUNT OF CORRUPTION WOULD DECREASE.

  3. Nadeem Lutfullah   February 9, 2019 4:30 pm/ Reply

    Rip off Sindh? Is there anything still remaining to rip off after the zardari group ruling over this Province for decades? Give him more time and he will even sell the land of Quaids mazaar in Karachi.

  4. S. IsrarAli   February 9, 2019 4:59 pm/ Reply

    False! After cleverly having 18th Amendment in Constitution approved, the successive Sindh governments headed by PPP took booty and all development and welfare funds received from federal government instead of spending find way to be siphoned off abroad in corruption to land in accounts and off shore companies in the personal names of PPP top brass. Not a single penny for all these years spent by PPP Sindh government on development, welfare, education purposes in Sindh. Mega corruption, loot, plunder, money laundering etc were the order of day.

  5. stopt this   February 9, 2019 5:54 pm/ Reply

    60% sindh sy ata hy tax ka baqi
    oil gas ka hisab koe nahi dyga wu bus gum return my sindh ko usky 60% ka half bi nahi milta

  6. Khan   February 9, 2019 6:38 pm/ Reply

    PPP people are crying because they will have less opertunity for their corruption..
    Why should not provinces share burden in this testing time…is Sindh no more a part of Pakistan??
    Budget cut will be for all provinces

    • Imam Bux   February 11, 2019 7:30 pm/ Reply

      So then federal government should cut the budget of all the provinces including federal too but ??? But at this time Sindh is one and only victim of budget cut ?? This is insane

      • Raghu   February 12, 2019 11:35 am/ Reply

        MAybe you forgot that the PM started saving the day he joined office. No lavish dinners, no lavish cars. simple house. No protocol. Imran Khan started from his house. He transfered PM house employees to other places in order to cut the spending of PM house. People of Sindh need to trust Imran Khan. Or else Zardari will make complete Sindh like Thar.

  7. Umar Butt   February 9, 2019 6:57 pm/ Reply

    Well it doesnt matter whether Sindh will get 70 percent or 40 percent.in any case the money will go to the pockets of the corrupt politicians.What exactly these politicians have done in last 10 or 15 years when they get the maximum from the NFC awards.is there any development in the Schools( i have seen the conditions of the schools in Larkana it was pathetic.Those schools were more of Farm houses).Same situation seen everywhere in the interior Sinh.Then come to the hospitals( Everybody knows how many deaths of newborns in only one Thar district).Situation remains the same in almost 80 percents of the Governmet run hospitals in interior Sindh. Then comes the fresh water supply,i will invite everyone to come and see the kind of fresh water the people of sind are drinking.More than 80 percent of tge people of interior Sind are living under the poverty line.So it makes no difference whether Sind will get 70 percent of share or nothing.

  8. Hammad Salahuddin   February 9, 2019 7:19 pm/ Reply

    Your title needs to be revised. Sindh has already been ripped off by ppp government sitting there for the last 10 years and doing nothing for the people but doing everything for filling their own bank accounts and money laundering.
    Can someone ask sindh government how much and where they have spent in sindh..?
    I think zardari very smartly imposed 18th amendment and nfc award changes to benefit his government in sindh because he knew that he would never come in power in center again and by giving heavy shares to sindh, no body will be able to touch them in sindh.. Pti should intervene to make changes to save centeral government. And to force provincial government to do something for people there..

  9. Fouz   February 9, 2019 8:20 pm/ Reply

    Zardari accounts closed

  10. Aamir   February 9, 2019 10:40 pm/ Reply

    Yes you can also say that Mr Zardari’s loot will be curtailed. What Govt of Sindh is spending on school hospital and welfare of poor citizens is not a big secret

  11. Sameer   February 10, 2019 2:07 am/ Reply

    Sindh gov is incompetent and have been looting Sindh on grounds of nationalism. Securing IMF loan has nothing to do with this. I say this since I live in Sindh with out any political affiliation to the ruling party. Hospitals are in ruin and joblessness rampant. The feudal lords tread on the weak and Sindh police has no respect. Nepotism reigns supreme. While the writer cries for Sindh’s share let me tell you as a Sindhi residing in a rural area, we have no water, no power, bad education and dead medical care…all that the Sindh is supposed to finance under the 18th amendment.

  12. Sameer   February 10, 2019 2:14 am/ Reply

    Even if the writer states is true…what good did Sindh gov do in the past 10yrs. Any support they had is lost due to corruption and nepotism.

  13. Wasif   February 10, 2019 7:45 am/ Reply

    When federal has to pay the debt & arrange funds for the provinces too, then let them to proceed as they want. In the end, it’s their headache how to run the country.
    One more point should be the audit of nfc to its ground delivering along with repayment of debts & helping federal to their parts.

  14. Ashhad   February 10, 2019 9:53 am/ Reply

    Wow, “Sindh wont be able to spend on schools hospitals etc and other services”
    Propostrous
    As if the Sindh govt has been spending on welfare and development all too much in the first place.

  15. Muhammad Abu Bakar Siddique   February 10, 2019 10:46 am/ Reply

    NFC award says that federal government should give more money to provinces than previous NFC award. If this NFC continues then their will be a time when provinces will get 100 percent revenue from federal government and federal government will not have only one rupee for working of federal government. I think that they should change NFC award which was legislated during eighteenth amendment

  16. عامر سنھو   February 10, 2019 12:42 pm/ Reply

    اگر سنٹرل گورنمنٹ اس پر عمل کرے تو
    سندھ کو فورا اپنے کم از کم دس سالہ پروجیکٹ جو سکول اور ہسپتال پر لگائیں ہیں سب لوگوں کے سامنے لائے تاکہ یہ گورنمنٹ نہ کر سکے اگر یہ کام سندھ نہ لا سکے تو ڈبل ہو جانا چاہے

  17. waleed   February 11, 2019 9:22 am/ Reply

    Sindh hardly spends its development budget . over last 10 years they hardly spent 5 to 10% on development . the rest was squandered lime this: 50% to Zardari & Addi, 20% to incompetent bureaucracy , 20% to contractors and remaining 10% on development. Its fact and not an urban myth.

  18. chNasirDI   February 12, 2019 12:56 am/ Reply

    Most likely the purpose of accepting a Special package would be considerably to avoid:
    -currency devaluation
    -stock market fall
    -financial degradation
    -lost FDI

    By taking-up buffer based debt to payback already “defaulting” old debt,that will be helpful in the long run.


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